A £44 million reservoir and water treatment works near to Newton-on-Trent has been given the go-ahead by West Lindsey District Council.
Under licence from the Environment Agency, Anglian Water will extract water from the River Trent and store it in a 20-acre reservoir holding some 230 million litres of water.
The water will then be treated before being pumped into Lincoln - providing residents with 20 million litres of drinking water every day.
Paul Valleley, director of Water Services for Anglian Water, believes the project will go some way towards dealing with water shortages, although there is still more to be done.
"While big engineering solutions like this new reservoir and treatment works are part of the solution, we all need to think carefully about how we use water, and not just in the current drought," he said.
Hose pipe bans are currently in place across much of the country as water table levels run extremely low.